Industry Briefs for Nov. 22

From wire reports

Published 9:15 pm, Saturday, November 21, 2015

Worldwide oil job losses climb to 233,000, recruiter says

By Collin Eaton

Houston Chronicle

HOUSTON — Still nursing deep financial wounds from the oil-market collapse, the petroleum industry has shed roughly 25,000 jobs around the world in the last two months, cutting upstream workers that analysts say will likely be difficult to replace when the downturn ends.

Job losses in recent weeks have increased the industry’s losses to more than 233,000 since the slump in crude prices took hold late last year, according to energy recruiter Swift Worldwide Resources. Given the speed at which companies are cutting payrolls — a rate that hasn’t slowed down yet — Swift expects layoffs to grow to more than 250,000 this year and to increase again next year if oil prices languish at current levels.

Swift CEO Tobias Read said there’s no sign of an immediate turnaround in the oil and gas job market and the situation “is likely to get worse.”

Crude prices crumbled this time last year after the Organization of Petroleum Exporting Countries signaled its member countries — which collectively produce about a third of the world’s oil — wouldn’t give up a drop of oil production to balance the oil market and bring up prices that had plummeted as international markets filled up with an oversupply of crude.

Prices rose somewhat in the spring but the market tumbled again in July and August, with U.S. crude hovering around $45 a barrel in recent months. Analysts had said the recent decline would trigger another wave of job cuts, which had been hefty earlier this year. U.S. crude traded for $40.91 a barrel in mid-day trading Tuesday on the New York Mercantile Exchange.

In the last two months, U.S. oil producers Devon Energy and Marathon Oil Corp. announced a combined 400 job cuts, while U.S. oil service supplier Superior Energy Services said it would shed 4,760 jobs. Canadian oil producer and refiner Husky Energy said it cut 1,400 jobs and Maersk Oil, the oil and gas production arm of Danish shipping conglomerate AP Moller-Maersk Group, is cutting 12 percent of its global headcount, around 1,250 jobs.

Read said the jobs will be hard to replace once the market recovers. He says his company’s estimate uses conservative assumptions in tallying job losses, using both publicly available data and keeping an “ear to the ground” in cases where losses are hard to track.

Moody’s: Distressed exchanges becoming more common

Houston Chronicle

HOUSTON — Low prices for crude and strained finances are forcing more oil and gas companies into distressed exchanges, according to debt rating service Moody’s, which may help struggling companies stave off bankruptcy but don’t always help creditors get paid back.

Moody’s classifies a distressed exchange as when a company, facing liquidity pressure and an untenable debt structure, offers creditors new debt, securities or other assets that lead to a diminished financial obligation when compared to the first set. Under Moody’s rules, the exchange is classified as a default.

Recently, companies such as Venoco, Halcon Resources Corp. and Goodrich Petroleum Corp. have offered creditors distressed exchanges, according to Moody’s.

The exchange is intended buy the company more time and delay or avoid bankruptcy until the company’s operations or the broader economic environment recover. When all goes well, the move can have benefits for both companies and creditors, Moody’s said.

An exchange can keep a company solvent as well as avoid the expenses and the loss of control that comes with filing for bankruptcy. But even if the company still defaults, the exchange can also delay a bankruptcy until market conditions improve.

Distressed exchanges have become increasingly common since 2009. Through the end of October 2015, distressed exchanges represented 21 of 48 or 43.8 percent U.S. corporate defaults, up from 22 percent of total defaults from 1988 through October 31.

In the oil and gas sector, distressed exchanges have caught on as companies struggling amid low oil prices look for alternatives to filing for bankruptcy. Many creditors have been willing to agree to swaps that give them less total money but the security of a lien.

That added protection justifies taking a smaller loss, Moody’s said. And on average, distressed exchanges increase the total recovery rate for every tranche of debt in a first-time distressed exchange as opposed to a first-time bankruptcy.

But, the firm noted, if the exchange doesn’t solve the company’s issues and another default happens, creditor recoveries plunge. And even extra protection in the form of a lien doesn’t increase the amount creditors can expect to recover significantly.

“Historically, unsecured-debt facilities have had poor recovery rates, while second-lien debt tranches’ ultimate recoveries were not significantly better than those of their unsecured counterparts since both types were in the same position in the debt structure,” Moody’s wrote. “Distressed exchanges involving the exchange of unsecured debt for second- or third-lien secured debt at least raise the holders’ position in the balance sheet, but the recovery prospects for the new secured debt might only be improved if the amount of debt above is reduced.”

Moody’s data indicates that about 17.8 percent of companies that default once do so again. Of those re-defaults, about 28 percent had first executed a distressed exchange and then subsequently filed for bankruptcy. Those companies, which started with a distressed exchange and then filed for bankruptcy, offered creditors much less than companies that filed for bankruptcy once, Moody’s said.

U.S. unveils plan to limit drilling on energy-rich Colorado plateau

DENVER (AP) — Federal land managers have released a tentative plan to protect most of the wild but energy-rich Roan Plateau in western Colorado.

The Bureau of Land Management unveiled an updated environmental impact statement Tuesday for the plateau, a step toward implementing a landmark compromise between conservationists and the Bill Barrett Corp., an energy company.

Under last year’s compromise, Barrett Corp. agreed to give up most of its leases to drill for natural gas on federal land atop the plateau.

The compromise settled a lawsuit filed by environmentalists who want to preserve the plateau’s forests, meadows, streams and wildlife.

Attorney Mike Freeman, who represented the environmentalists, said he was still reviewing the BLM’s plan but said it was encouraging.

Study: New England doesn’t need more natural gas pipelines

Associated Press

BOSTON — The New England region does not need additional natural gas pipelines to maintain a reliable flow of energy for the next 15 years, according to a study commissioned by Massachusetts Attorney General Maura Healey and released Wednesday.

The report concludes that the region will be able to meet electricity needs through 2030, even on the coldest of winter days, “with or without electric ratepayer investment in new natural gas pipeline capacity.”

Authors of the study, conducted by economic and financial consulting company Analysis Group Inc., said they took into consideration the recent announcement by the owners of the Pilgrim nuclear power plant in Plymouth that they planned to close by 2019, resulting in a loss of 680 megawatts of electricity, or enough to power more than 600,000 homes.

Tennessee Gas Pipeline Co., a subsidiary of Houston-based Kinder Morgan Inc. which is seeking to bring a $3.3 billion natural gas pipeline into New England through western Massachusetts and southern New Hampshire, labeled the study “seriously flawed” and said the recommendations would do nothing to lower the region’s high electrical costs.

But Healey, a Democrat, said the report shows how the region can address its energy needs in cheaper and environmentally cleaner ways.

“This study demonstrates that we do not need increased gas capacity to meet electric reliability needs, and that electric ratepayers shouldn’t foot the bill for additional pipelines,” Healey said in a statement, adding that a more cost efficient solution was to “embrace energy efficiency and demand response programs that protect ratepayers and significantly reduce greenhouse gas emissions.”

While investing in new pipelines could significantly lower wholesale prices for electricity, the report said, it would also require long-term commitments and up-front costs that pose significant risks for ratepayers.

Increasing natural gas capacity through additional pipeline could also hurt the ability of New England states to meet existing climate change goals, the study concluded.

Healey said she sent a copy of the study to the Federal Energy Regulatory Commission, which is reviewing the Kinder Morgan pipeline proposal.

The company, in its statement, said the report “focused only on the electric power market in Massachusetts and the region, ignoring the need for more natural gas from local gas utilities struggling to meet increased demand from residents and businesses seeking to switch from oil to gas.”

The New England region, for the past two winters, has spent about $7 billion more for electricity than other regions of the country that have easier access to natural gas, the company said.

“Adding more gas pipeline infrastructure to a region already over-reliant on natural gas defies economic sense, environmental sense and common sense,” said Bradley Campbell, president of the Conservation Law Foundation.

ConocoPhillips approves $900 million Arctic reserve project

ANCHORAGE, Alaska (AP) — ConocoPhillips has approved funding for a $900 million drilling project on Alaska's North Slope.

When production begins in 2018 at the filed in the National Petroleum Reserve-Alaska — an Indiana-sized Arctic reserve — the project is expected to yield 30,000 barrels of oil daily at its peak, The Alaska Dispatch News reports.

Production would be the first time oil has flowed from federal lands on the reserve. The Bureau of Land Management oversees the reserve and is working on a broad management plan in the area.

“We are pleased to have been able to work through key permitting issues with the Corps of Engineers and BLM that now allows us to move into the development phase,” said Joe Marushack, president of ConocoPhillips Alaska.

The BLM permitted the project last month, after the U.S. Army Corps of Engineers approved a federal wetlands permit in January.

The project will require a new gravel pad, a road, facilities and pipelines. Plans call for nine wells initially and up to 33 wells, with oil processing at the existing Alpine Central Facility.

Construction is slated for early 2017, with peak winter-season hiring estimated at about 700, according to a company statement.

The project will receive a tax incentive through the “new oil” portion of the state's tax regime passed in 2013. State Revenue Department spokesman Ken Alper said if oil prices remain low when production begins, the project’s tax rate could drop to zero because the minimum tax wouldn't apply.